SMSFs ramp up LRBA and property allocations

Latest ATO figures show self-managed super funds' interest in limited recourse borrowing arrangements (LRBA) and residential property assets have skyrocketed in the last five years.

December 2017 quarterly data shows the sector held $31.4 billion in LRBAs; in 2013 only $8.9 billion was invested in this asset class.

Residential property on the other hand almost doubled from $17.3 billion to $34.2 billion.

Interestingly, more SMSFs have ramped up borrowing activities - jumping from $9.8 billion to $24 billion.

Rainmaker's December 2017 Roundup research shows the SMSFs segment is growing slower than the overall superannuation market due its low returns. SMSFs hold $723 billion or 29% of Australia's superannuation pool.

Small SMSFs allocate more than half of savings in cash, but as they get larger this plummets to less than 20%, Rainmaker said. Smaller-sized SMSFs hold less than 10% in managed funds, but as they grow this on average nearly triples to about 25%.

This trend was also evident the ATO data. About 29.8% of savings was allocated to cash in June 2013, which dropped to a five-year low of 21.8% as at December last year.

"Not only do these allocation change as SMSFs get larger, over time these allocation trends are getting stronger," Rainmaker said.

The opportunity for product designers is that even though SMSFs hold more direct Australian equities as they get larger, they deploy more cash, hold less property and increase their managed funds holdings, it noted.

Based on ATO numbers, there are 592,658 active SMSFs, with 1,118,848 members. During the June and September 2017 quarters, the number of funds wound up spiked - the largest over a six month period.

The Federal Government recently announced it will expand the maximum number of members from four to six.

Revenue and Financial Services Minister Kelly O'Dwyer said the change will allow for greater flexibility given the strong growth the sector has experienced and will support members who want to manage their own super.

Read more: SMSFSMSFsATOLRBARainmakerResidential propertyFederal GovernmentKelly O'DwyerRainmaker Roundup
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